Monday, July 17, 2006

Death of a stockbroker

Part IIThe whole stock broking industry is due for a shake-up. Arguably CFC is the only stockbroker with the capacity to serve a myriad of customer stock broking requirements.

Now, one other leading Kenyan Bank has applied for a stock broking license, which is expected to be granted later this year. And if one of the big Kenyan banks (Barclays, KCB, Stanchart) decides to enter the market, this could herald the death of the traditional stockbroker.

Banks are always looking to grow their fee income and the sums are here. Imagine if every time a customer withdrew or deposited funds from his/her account, the bank earned a commission of 1.5% of that amount. That’s what a stock broking license means as brokers get paid their commission when investors buy or sell shares regardless of their investors gain or loss.

Revival

EA Safari Air: The airline will launch twice daily flights to Mombasa starting on August 1 at a price of 8,900 shillings plus tax. No response from Kenya Airways who have had a virtual monopoly on that route.

Equity Bank: The listing of 90.5 million shares of Equity Bank at the stock exchange has now been approved. listing on August 7

KBS: A few Kenya Bus vehicles are back on the road this morning. The buses are refurbished, painted over, with new seats, and look much cleaner and better maintained than when the company shut down earlier this month.

Kenya Re Another IPO expected, probably in 2007 will be that of the Kenya Reinsurance Company (Kenya Re) from www.stock-detective.co.ke.

Scangroup: IPO opens today, with 69 million shares up for grabs.

Uchumi: One month after I made, what I thought was, my last Uchumi purchase, I was back to buy some Afya apple juice. Afya is one of the brands of Kevian Kenya owned by Kimani Rugendo, a dynamic Kenyan entrepreneur and businessman, and who as a supplier, has led the Uchumi supplier’s movement that successfully lobbied the government to revive the chain.

The stores have reopened with the same euphoria and fanfare that followed the rights issue last year. The question is can this be sustained and will customers be shopping, and suppliers be stocking, at Uchumi 3 or 6 months from now?

Also, the Minister of Trade announced that an Uchumi shareholders meeting will be held this Friday at KICC.

We have cash in our client accounts and we dont want to lose all that cash. e.g. i have a few 100k in cash with Dyer & Blair and if it is the one with problems I'd like to know so that i move my cash.

But this raises another issue... why r kenyans so conservative when reporting matters!? And i offer this as a constructuive criticism. Why say "One of the oldest stock brokers" instead of the actual name of the broker. And whey one of the banks instead of the actual banks name. Once can furtheremore say "XYZ Bank is rumoured to...".

Especially on a blog where one has more leeway... and you Bankelele, like the a certain bank/corporation/company instead of explicitly mentioning the entity's name.

As i said, i offer the criticism in good faith as this is one of my favourite blogs.

My guess is the affected broker is Dyer & Blair... and with that said i'm walking over to draw all my cash.

Does Uchumi deserve to be revived? A few observations:- A relative went to Uchumi Sarit to purcahse champagne before it shut down. A shelf stocker suggested they exchange labels on the bottles to get a price reduction, and pay him a small fee for his "services". She refused.- A friend supplies Uchumi. He advised that before they shut down, he needed to bribe certain officials in accounts to get his cheques released. he also mentioned they are required to bribe from the point of having their goods accepted by Uchumi.- Another friend recently started supplying Uchumi after paying the required bribes. He visited Ngong Road and found his product was not on the shelves. The shelf stacker then advised him that he was required to bribe again to have his product make it to the shelf. The bribe would be shared by the stacker and someone refereed to as "mzee".

With all this going on, what really are we reviving? Uchumi is a den of corruption and bad management, and really Kenyans do not need to protect such an institution.

I echo anonymous - more info please! Who's this that's not delivering?I have worked with three stock brokers - including CFC - and they all sucked!When KenGen was falling, I asked CFC to sell at 35 and they held them and sold 30

Anonymous: No stockbroker is collpasing. Your client money at Dyer & Blair and ALL other brokerages is safe. I was lamenting the very poor service at one of the more promising ones.

Dropmyload: Uchumi revival as a national prority is debatable. The past behaviour of Uchumi employees as you describe it is was probably typical (but extreme!) of any company where employees are very worried about their future

Nelie: Have said it many times - customer service for retail investors at all brokers is very poor, and needs to be improved.

Dyer and Blair is ok and safe but their services are poor- they tend to concentrate more on institutional investors but for small timers when you place an order by the time they execute it will take a while.I know one brokerage which is under scrutiny for offloading sizeable Uchumi shares 2 days before they announced the collapse- (The chief dealer is contemplating early retirement.) i generally believe that brokerages are safe their services just stink and need urgent change.

Uchumi will still have problems as long as it is run like a Gok office. I believe there are many loyal customers who would want to build it up but they will need to pull up their socks and boots while at it!!

The scenario described by dropmyload above is shocking to say the least.

D&B i believe is quite okey infact I understand that they are underwritting the ScanGroup IPO and are involved in the Listing of Equity bank next month. Sassy do what i did request for online access therefore you won't have to visit their offices, i normally place my orders online then confirm after 3 days whether they have been executed...try it out it works

A brokerage wont go down unless it looses a huge chunk of it's corporate investors (The guys who buy stocks worth millions) and this wont happen soon. I think the CMA should come in and deny banks licences, but have the stockbrokers style up. This is a service sector that is just begining to look rossy.Can you imagine writting an e-mail to a bank official to trade a stock, I have to bitch and call and send more than 20 e-mail just to get my banks (KCB, Stanbic and co-op) to reply to my e-mail.As it is most banks have their lobbies full of customers, how will they cater with the extra paperwork and customer base, plus the issue of offering investment advice to newbie investors.Besides if a bank is quoted on the exchange it shouldnt be a broker.

banks good point on stockbrokers, most of them cannot deliver good service.My take is that with the new electronic exchange in place, clearing of trades will be much easier, and the NSE will be open for more hours, generating more volumes and a higher turnover.The brokers that will fold will be the ones that will not install a good IT system, to handle clients portfolios and for the back office. The finance ministry ought to come out with a law, that separates commercial banks from investment banks, does one exist yet? In the US their roles are clearly defined and no big banks have brokerage operations. I shudder at the thought of BBK getting into the game, we would have to pay all kinds of punitive charges just to be able to invest in the market. banks are in panic mode, coz wananchi are becoming more sophisticated in their finacial dealings, and are no longer parking their money in current or savings accounts. We now have unit trusts,stocks and also informal investment clubs where we earn better returns and we are willing to take the risk. Even individual retirement accounts wil drain the banks further, so i predict more banks will enter the fray so that they can generate more profits.Stanchart acquiring part of First Africa is a perfect example.

sassy: I agree that most stockbrokers concentrate on institutional investors. What happened to the investigation of the last-minute Uchumi parachuters?

Prousette: New team looks serious, but agin so did Mastersen-Smith and we believed him (we also believed Thairu when he said [several times] that Uchumi had finaly hit rock-bottom and was now posied to turn upwards) ! Also, I saw 3 KBS buses this morning

Anonymous Skwota: We all seem to have to follow through for orders (takes several days [and phone calls ]most times to execute a single trade

Ken: No brokerage is going down, but several customers [I know] have moved accounts citing non-existent service as the reason. I don't think the CMA is even aware that customers are complaining otherwise they would investigate the capacity of each broker to serve investors.

Mashatall: the volume of NSE shares [post-Kengen]has over-whelmned many brokers. If banks like CFC want to operate brokers, they will have to form subsidiaries. CMA has fixed commission and fees that brokers can earn. I agree investors are flocking to equities rather than wastign cash away in savings accounts. Bonds are still mysterious and real estate too pricey for most.

hey banks, just a question unrelated to the topic. do you think the next focus for real estate is gonna be eastlands (gentrification) reason is that this area. have infrastructure and i guess if i was an investor i could tear down this old buildings and put up new higher density blocks. - are this properties still owned by city council ? and would city council be willing to sell this property to current residents. is there a potential win win situation for current residents

To add onto *coldtusker's, most US commercial banks are involved in investment banking, but as autonomous subsidiaries. e.g., Bank of America owns Bank of America Investments Inc. So, it's not unheard of, as long as it's not part of the bank's core commercial business. Since, establishing stock brokerage firms is so expensive in Kenya, banks entering the fray will provide the necessary competition for the inept careless stock brokers.

@Anon - There have to be firewalls between investment brokers & the banks even if they are owned by the same parent (holding company).

Even if BBK had a brokerage unit, what punitive charges is Mashatall referring to? If you do not like BBK, go to an independent broker with no bank connections!

Banks with related brokers (e.g. CFC) have the ability to fund larger & complex deals since they can draw on the banks' financial strength & brokers' expertise.

What is KEY is oversight of both Banks & Brokers by the relevant authorities. There is always someone who wants to scam the system! The bank could use its broker to manipulate the share price or other shenanigans BUT that's where the CMA, NSE, CBK & DPF come in...

@ColdtuskerPoint well noted !!The US has clear guidelines as to which bank can own a brokerage, it has to be a finacial holding company (FHC) and not a bank holding company (BHC), for it to engage in all kinds of financial services (i.e .securities, insurance, annuity issuance, mutual funds, insurance company portfolio investments, and merchant banking.Wachovia bank which owns a capital markets unit, just recently settled a 25 million multistate fine, for allegations of potential conflicts of interest between the firm’s research and investment banking operations.My point here is that with the poor regulatory structure in Kenya's capital markets, we need to ensure that the small brokers are given an incentive to evolve and grow into stronger institutions.Do i believe that Barclays will offer superior service? not so if they just put up their share registrar company for sale.We clearly need to define roles within the finacial services sectors, so that we dont end up having one huge conglomerate trying to corner the market.My belief is that eventually technology will change the brokerage landscape and the service will become better as more firms become automated.Competition is good for the market, but with the banks coming into play then most brokerages that are just starting to establish themselves will evetually fold up.

It makes me sick to my stomach how unimaginative and un-entrepreneurial Kenyan banks and by extension, banks operating in Africa are. Whoever heard of a banking business model where profits are driven by service fees instead of credit/depositor expansion? And we wonder why we are THIRD WORLD? Industrialized economies work because credit is cheap, banks don't act as philanthropists, they drive business by expanding their lending portfolio through attractive incentives to consumers......small wonder why banking penetration in Africa remains stagnant at a paltry 5-15% of the population at best.

@Mashatall - I disagree coz innovation & customer service will carry the day!

Big is not better anymore. I had tons of problems with hotmail so I switched to yahoo then to gmail. Hotmail is owned by Microsoft.

Are you a mid-sized biz? Fed up with inflexibility at BBK, SCBK or KCB then go to I&M, CFC, etc

There are hundreds of small brokergae firms in the US that provide varying level of service. Some compete on price (Scottrade for $7 a trade regardless of size!), others on service (Merrill Lynch), research (Smith Barney, etc

Kenya has poor regulatory oversight but even worse legislative enforcement. In spite of my criticism of the NSE & CMA, they can be forced to improve due to investor pressure BUT not so the incompetent MPs.

In any event, the "fledging" stockbrokers have been around for many years since the last batch of licenses were issued. Many don't re-invest into personnel & equipment. Most don't provide research. BUT they expect you to trade thru them!

@anon - I might start sounding like an apologist for big banks BUT let's look at the facts & reality.

- Lending is inherently risky in countries with poor legal structures e.g. Kenya. In case of a default the court process can take upto 5 years. In addition, corruption means that a bank can lose a legitimate claim!

- Enforcement of favourable rulings is a nightmare since the police are not geared to "evict" or help seize assets! Of course, the banks can't "bribe" to enforce the judgements!

- Fees (paid upfront) reduces the level of losses i.e. the deduction of the fees from the loan proceeds reduces the net amount lent!

- High interest rates paid by the public sector (government) crowds out the local banks. Thus the cost of lending increases substantially.

- Actually fees ARE a major source of income in many developed countries including the USA. TCF Bank actually lauds the increase in fee income as a prime driver of income growth since the interest spreads are under pressure.

- StanChart (2003)tried to expand lending by offering unsecured loans. In 2004, they took a huge charge for defaults specifically related to these loans! Tough biz, you "expand" your loan business & you get screwed!

- Rule of law doesn't apply to all. Banks in Kenya face huge write-offs on loans secured by "fake" title deeds. This document is supposed to be backed by faith in the government's system of tracking land ownership BUT the banks stand to lose uncer the circumstances so they stick to lending to larger firms like EABL, BAT, etc

The government places burdens on banks since it is a POPULIST measure without contemplating that a secure banking industry will drive the economy to further heights.

Thereafter it is easy to blame the banks & not the profligacy of the government, inept regulatory institutions & corrupt persons.

Mashatall: retail investors will never get the investment advice that corporate investors get. But if Equity Bank at shags branch is able to execute their share orders in a day compared to a Nairobi broker who takes two weeks to do the same, more power to the banks with their capapcity and reach.

Anonymous: Next focus is going to be the Nairobi National Park and forests around Nairobi - and the debate is if we should clear them for housing & 'development' purposes.

Coldtusker: stockbrokerage license is not 'expensive' but have owners since invested in IT, offices, and staff to meet the increased demands? Many have not which is why service is suffering.

@ banks- as Coldtusker puts it Kenya has poor regulatory oversight but even worse legislative enforcement so the investigations are going to be just that and eventually it will sweat out. Enforcing the CMA rules and proving that inside information was leaked out making it easier for people to offload shares will be an uphill task for the NSE,CMA and probably the KACC.

The problem with banks that also offer brokerage services is that sometimes they are housed in the same building.

This creates a potential for a joe bloe who's got no clue what stocks,margins,and bonds are being reffered just "down the hall" to the brokerage guys who end up soliciting the poor joe bloe for non- FDIC issured products. Now remember that poor joe bloe trusts his money at the bank coz its FDIC insured and just assumes that the guys "down the hall" are the banks employees ofering him wonderful returns for no risk, so he ends up "investing" all his savings without concidering the risks involved.

I work for Citibank and believe me I see this scenario every day. Now this is states, you can imagine how gullible most Kenyans are and how much they would loose by getting "investment" ideas from the guys "down the hall" soliciting for the next Uchumi.

It's a sad situation when shoshos loose a lifetime of savings coz they failed to read the fine prints at the bottom saying not-FDIC insured! I surely dont wish that on Kenyans.

@Coldtusker: I believe market forces will straighten out problems with brokers in the long run. As more companies list, and as we get more Uchumi like fiascos, then NSE and CMA will style up.Do you know of any channel of communication currently open between the common investor and the CMA or the management of the NSE ? That would be a great place to start, we could just air our views and fears and see what their response would be before we conclude that they are unwilling to change or are corrupt.

My Oh My!!!! I think this raging fire has made a strong case for Mutual funds/ Unit Trusts. The largely unsophisticated Public , to which I belong, will do alot betterinvesting in these than trusting cowboy stock brokers who pay more attention to the big boys.

Hence my question: can we have a few comments on the unit trusts that are out there. I am with British american equity myself and have done preety well for myself. And I also have some funds with Old mutual in a regular savings scheme that I got into early and doubled my money in a year!!!! I know it wont happen again, but hey, no phone calls and emails to anyone!

Globally for example Barclays is a major player in capital markets through barclays capital I think banks may be able to offer better service long run through subsidiaries because of there already existing retail customer & branch network. I have had terrible experiences with the local brokerage houses and would not mind a slight uptick in commissions if this takes care of the non existant customer service for individual investors. I think this is the way to go & this type of competition will see the consumer benefit big time no dropped trade orders, interest on depodits that have not been invested e.t.c

I suggest that banks be restricted to only what they do best: baking and not stock brokeraage or insurance. I think having been left loose thay are now making more money in nonecore business activities.What should be done is to have all brokerage houses with advisory services.

Fiery, constructive and informative discussions up in the Bank's hizzle..cool!

I'm happy to see EA Safari do Coasto..this thing of a return ticket to Coasto costing the same as plot somewhere in Kiambu...barefaced thuggery! Agree with Ms. K...would be great if the train coaches were refurbished and provided an extra cool Coasto travel option

Hanyee, according to the new security guidelines at the airports, one needs to check-in two hours in advance. Now add that to 1 hour in the air and you have 3 hours. Surely if you are to travel by road you'd behalfway the journey. That makes nonesense of the offer.

Its terrible dealing with kenyan brokerage houses.in the last few last weeks i instructed nyaga stockbrokers to purchase express @25. The order was not executed for a total of 10 working days. but every day i could see the counter moving an avg of 200,000 shares. In the end they purchased at 27.50/= thus maiking me lose heavily. i didnt even qualify for the 1:10 rights issue which was part of my target...they're all the same. i had similar problems with suntra, ngenye

Sassy: CMA must think highly of themselves as they were on TV warning Scangroup executives

Kudrinketh: So far only CFC offers banking and brokerage, and in the two Nairobi branches, each is done on different floors. I think most 'small' investors are cautious which is why they still apply/insist on getting actual share certificates, even in the CDS era

Ken: The more compettion, the better, however, prices.commisions are fixed by CMA, limiting the ability of a broker to differenciate

DREAMWEAVER: Unit trusts/managed funds are good. Unfortunately many kenyans feel they have a grasp of the stock market (and don't see the need for professional managers) [until we get burnt by Uchumi]

Jakarumba: banks have great reach, which is why insurance co's WANT to be able to sell their products though banks, and also IPO's are sold at most bank branches

The.Hanyeé: Thanks. Train to coast is till there, but only good for nostagic trips. Am still waiting to see hwo KQ will react though

Jakarumba: 11K is a lot for a 45-min flight, but until the road is all fixed (esp. mariakani area), air travel remains the prefered business choice

Gathinga: sorry about your Express experience

Jakarumba: But if you set prices that are too narrow, often your trade will not be made. sometimes you have to giver broker some margin.

Quite an interesting post. . . and an interesting discussion too! I've made banks a regular read since last year! Kudos banks. A few months ago I placed an order with Suntra to bu Mumias at 50 bob. . .they executed my order almost three weeks later at 64 bob/share! Life becoming more of a woe to the small-time investors in Kenya!

Wow - this post has generated substantial comments that could be a blog in itself! Well done Banks!

@banks - Exactly my point that brokers dont need protection if they don't invest in IT & service. Let them shape up or be shipped out!

@kudrinketh - The problem is that if you try & stifle new ideas coz "someone" will get hurt then we will never progress. The cucu (grandmother) will have to take her chances! As is the (existing) brokers will sell the cucu what is NOT appropriate! In the US brokers do a profile to find out your risk tolerance whereas in Kenya there are hardly any financial advisors!

We have to move on otherwise otherwise the rest (young ones & those not born) will curse us for not being progressive!

@ken - I tried to contact CMA & NSE but they don't like criticism (what I offered!)... I know this has been plugged many time but check the rant on the CMA & NSE on www.vituvingisana.blogspot.com

@jakarumba - Do you work for s stockbroker? I say we need more competition to whip the brokers into shape! Having advisory services doesn't help if the SERVICE is poor! I don't trust most of the existing brokers to provide advise either! What research do they even do?

KQ - They will do well even with the train & EA SAfari coz for businessmen/women have to be in MSA or NBI on time feeling fresh! The drive (if alone) can be harrowing with the current state of the roads.

The train can be fun (did it once & had a great time. Purely for leisure) BUT for tourists coz it can be delayed. This is NOT for time sensitive folks!

Udi: East Africa Air Safari''s service is a Sham.Banks: your blog has become a must read, a plans of going big? I invited you to Nation's business forum, are you there?Coldtusker: I'm a small investor like Ken.

I am especially appalled that these guys are just cashing in on the fat commisions brought about by increased trade. They invest in neither R&D, staff training, customer service etc. Get a good picture - sample 3 or 4 of their websites ....you will be horrified. Healthy Competition Rocks!!

Hi Bankelele. Good work on the share/brokering stuff etc. All the stockbrokers in Kenya suck! I have being trading shares for the last five years and have used different stockbrokers with the same pathetic results. When you go to buy they are happy to take your cheque/cash and you have to keep calling them to confirm your order. But the worst comes when you intend to sell. They take so long even for high traffic shares trading in 100,000 - 200,000 each day. But the bummer comes when you start to inquire and pledge/beg for your cheque. It takes an average of 3 - 4 weeks for all this to happen. I am not talking about non-moving shares but active traffic shares. I have resolved I better take my money to a unit/mutual fund where exit period is two weeks and i get my share. What annoys most is well-connected people make a kill out of price highs and lows but ordinary Mwananchi the price will always be the average since your shares will be sold after the kill!! We need to move to Direct trading like in USA with AMERITRADE and then I will join. Otherwise there is no gain for small investor in this market. Also a lot of insider information is being illegally passed and this can be evidence from the volume before major announcements. The stockbrokers are also secretive and there is no transparency where your money is at any one time during the buying and selling order periods. Can anyone advise on the way forward, I am now 32 and have been in this business since I was 25 and would have been happy to play along mpka the end of my time. Any advices

Coldtusker: Thanks, In hindsight, I get quite good service from my broker. They have staff, systems, answer e-mail & phone calls, and let me know why my trades don't go though, in addition to regular advice on shares.

Gathinga: Thanks

Udi: New KR starts on August 1

Jakarumba: What's wrong at EA Safari Air? And I like this forum but which also takes up much time. will check out the nation later

DREAMWEAVER: On the one hand we (shareholders) want KQ to do well and remain super-profitable, but on the other hand for (passengers) airline is a cut-throat business, and airlines do all nasty things to fill up aircraft with profitable passengers. Ethiopian airlines is coming soon

Banks, when KQ is offering continentral breakfast in its domestic flights, EA Safari is serving juice or soda for breakfast and yet their fares are higher than KQ. Their aircrafts are also not as cosy as KQ's.

Banks, thanks for your informative blog. Which broker do you use for your investment who are that prompt? I will be happy to move there...give credit to them for good service.

I think the broker you tagged 'death of a stockbroker' is Francis Drummond. They lured us with online trading but wapi, service delivery is sooo poor it hurts. Every time I go there I find the staff I dealt with has left and the new one cant trace a thing about my shares. I want to move.

Speaking about leaving - where to??I sold some ARM via suntra - been calling them everyday for the past 2 weeks about my chq. And yes they delay placing orders - you either end owing your broker or the market just flies past your price range.

Msaibui, FD is also my broker, I've experienced what you and Anonymous are saying. Initially they used to update the online accounts almost daily, but of late it seems they have forgotten the small holder. The issue of owing a broker is a strange one, it happened to me that they bought stocks in excess iof tthe cash I had deposited and when I was selling them the had to deduct their money. This needs urgent control by CMA because it means that they are trading with people's money. Employee turnover is high also at FD, by the time one of the customer care ladies was sorting me she was out (most likely fired).

Sorry but you are being an APOLOGIST and the proof is in the pudding: EQUITY BANK. Innovation in business means you tailor your service or product to maximize prevailing conditions whether they are within your span of control or not. The tired old excuses that parochial and ineffective banks make have been blown out of the water, you need only look at the exploding micro-credit sector to see a business model that CAPITALIZES AND EXPLOITS the hobbled financial services environment in Africa. What Equity Bank has achieved is nothing revolutionary, it only seems so because the rest of the players are allowed to get away with archaic and parasitic models. It gives me great joy to see the heat they're emanating, especially now that they will soon CROWD OUT conventional and established banks, and BEAT THEM ON THEIR OWN TURF. Notice also, Equity's meteoric rise has been driven predominantly by depositor and credit expansion. EUREKA!!!!

Regarding service fees in the West, please note that the fees are tacked on to 'servicing the cheap credit' extended to you. IT IS A COMPLETELY DIFFERENT MODEL, they drive business by extending cheap loans and then collecting fees ON BULK VOLUME OF CREDIT extended......in other words millions of people are given access to credit, risk is spread out due to sheer volume of patronage, gazillion is made on servicing the credit that is affordable and manageable to the borrower, the cycle is repeated over and over because people are able to borrow at rates that are not punitive and unsustainable, if anything the lenders give incentives to increase the amount of credit applied for.Question for you, how do you think this phenomenon emerged? And is it so difficult to replicate in Kenya?Just like Equity, innovation demanded that the banking sector in the West focused on massive depositor/creditor mobilization...this is CAPITALISM 101.

Ryan Air advertise great deals for GBP 10,20,50, etc BUT taxes can double or triple the final cost!

Regarding the limited flight times - I am not a fan of that either! I think they are pushing their latest/new frequency to Entebbe.

Ethiopian is a mere blip for KQ on the Entebbe route. Perhaps the KQ special fare counteracts ET flights? KQ are tough competitors.

KQ - BUY for the long-term (3-5 years)

@kames - If they have a website... Most Kenyan stockbrokers are in the stone age.

@banks - CFC r good but cud b better. They have been busy with IPOs by being lead brokers for KenGen & ScanGroup. Better than most others out there! Nicer offices, e-mail, multiple fone lines, etc

@banks & jakarumba - USA passengers are surprised that KQ serves "breakfast" or even any "free" food on a 45 minute flight! The "discount" airlines in Europe charge for sodas on their short hops!

@masaibu - The dynamic CEO was Robert Mathu who "resigned/retired"... He was instrumental in the online trading platform esp for Kenyans abroad. After he left, well you know the rest!

I am not implying that FD is the "dying" firm as some have implied... I have no idea about FD's financial state. They seem to be doing well coz always busy. Banks specifically states that none are dying...

@anon - We are on the same page...my thrust is NOT supporting a status quo BUT INNOVATION & COMPETITION... whether small or large banks... its just that "big" banks tend to get the rap...

The issue being debated (lost in the nature of non-threaded comments) was "banning" banks (large or small) from being FINANCIAL SERVICES FIRMS. That would means banks can't venture into insurance or stockbroking.

Re-read the comments/thread from first to last. The example provided was that if Barclays got a stockbrokers' license it would "crowd" out the existing stockbrokers due to its heft.

I said Big is not Better thus BBK can't crowd out the EFFICIENT, INNOVATIVE & CUSTOMER ORIENTED players.

I SUPPORT innovation. In fact being nimble counts for more then heft!

Technique gets you a second night. Bam bam, thank you Maam (probably) doesn't!

I like Equity's ability to service the "not high-net worth" client! They have fiiled a niche that was sadly left to the shylocks.

Part of KenGen huge success amongst the rural flok was coz of Equity's presence in these areas...

I was talking about the "regulatory" & "legal" environment that screws all banks. Fake deeds, etc help no-one but raise the coat of business for all.

Equity has grown so fast so soon, it will feel the pain later esp bad debts & defaults IF it has to go to court. The micro-sector often uses "group guarantees" that can't be duplicated by big banks or they will be accused of blackmail!

When BBK went after matiba after he defaulted, some shareholer idiots wanted BBK to "forgive" the debts. I suggested that ALL such shareholders surrender their dividend chqs to help matiba reduce his loans. Apparently, none of them "gave" up their dividends for the cause!

My point is that in the micro-sector the "group" would have made good on matiba's loan. No "foriveness" here!

We need a Grameen Bank in Kenya... I think K-Rep is only partly effective as one... That is another bank to look out for esp if it goes public...

I don't know about you, but I'm very jittery about EQUITY BANK. I think we are witnessing the likes of TRUST BANK all over again. This Bank's meteoric expansion is not only mindboggling, but also unsustainable; it seems to thrive largely on "political" patronage and donor enthusiasm for "micro-finance". There's a lot of government business with Equity; some of the business that used to go to KCB and NBK. Soon the chicken will come home to roost, and the consequences??? Unfathomable!!

@anon - You asked "Question for you, how do you think this phenomenon emerged? And is it so difficult to replicate in Kenya?"

1) The good ol' "Colonial days" - The "big" banks catered to the "white" establishment including the big businesses.Asians had their system of moneylenders who eventually developed into societies, then finance houses & finally (mid-sized) banks.

2) The "new banks" came in e.g. First National Bank of Chicago but they left after economic problems in the 1980s & 1990s. They sold out to local firms e.g. merali bought FNBC & converted it to First American which was merged with Commercial Bank of Africa.

5) New but solid banks setting up shop in Kenya in the late 1990s. These are banks that took over other banks, etc e.g. Bank of Africa. These are better managed banks.

6) New local banks e.g. Equity & K-Rep that are filling a void.

Replication

Our banking laws cater to the "older" banks with various knee-jerk regulations that were used to counter the threats by the collapse of banks over the years.

Kenya needs a comprehensive review of the banking sector. Progress has been made with the Basel II convention & new reporting guidelines.

The requirements to open an account are onerous at banks due to "laws & regulations". There is a 100/- stamp duty to "open" an account! This is stupid coz it is a tax. Instead of encouraging use of cheques, there is a 2/50 charge per chq. Luckily this has remained stagnant for years.

Security - banks are massive affairs that raise cost of business. Equity used toned down branches which is great. Security would mean banks can spend less on grilles, alarms, etc & spend more on staff ot lower charges.

Infrastructure - BBK is set up for the high net worth clients who want privacy for a fee. Equity is for the masses. KCB is doing a better job at attracting the "people" back.

Legal Fees - The laws allow for onerous charges by lawyers to prepare loan docs! In the US, there are STANDARD forms that are used by most banks. A lawyer reviews them but does not have to create them!

Competition - The "big" banks benefited from flight to quality esp when Trade Bank, NBK, etc were in trouble. The preference was the "expensive" but safe banks.

hi all. like anon, a jitery about Equity. One cannot deny that they have benefited from some amount of patronage. Like how they bid and won for the take over of the retail assrts of development bank of kenya. when they did this in 2004 and opned a branch at the former dbk offices, they they became visible and the rest is history. There is some info that they have lots of insider lending to small microfinance firms associated with the directors who then lend on to customers. apparently they're able to get the loans so cheap.

Its also been said that CBK had initially refused to grant them a bank license cos CBK was not hapy with their provisioning policy. Most of the loans that would normally be classified as nopn-performing in other banks have not been classified as so at equity... I see the bubble bursting precisely coz of non performing loans

On FD, A friend bought into Kengen IPO through them. They got him the shares and the refund, yet they have not debited his account to date. If he wants to withdraw the cash, he can get a chq. So whose cash did they use to buy the shares.......your guess as good as mine

I completely disagree that Equity Bank is a red herring in the making....in my opinion, Equity epitomizes the hallmarks of every great and successful enterprise: calculated risk and brilliant understanding of their customer profile vis a vis service offering. I agree that there has been some 'patronage' but quess what PATRONAGE HAS BEEN THE LIFE BLOOD OF EVERY MAJOR BANK IN KENYA. Cold Tusker, I am sure you can attest to this since you gave an excellent synopsis of banking history in Kenya. Multi-national banks and their domestic spin offs entered the market post independence to cater to the financial needs of the elite. Most of these banks were conservative in nature and relied on predictable and safe investments i.e. monied depositors whose security was guaranteed by their political and economic connections. Perhaps had Kenya taken off on a coherent economic expansion, their timidity would have worn off and led to aggressive courting of an expanding middle class. Didn't happen, after a few years of tentatively catering to the salaried middle class and civil servants, the economy hit the skids coupled with myopic and incongruent monetary and fiscal policy so the next safest investments were government paper. Notice in this narrative, the dominant thread: RISK AVERSION.To this day, 99% of banks in Kenya cling to this security blanket=safe depositors anchored by patronage a la Barclays Bank, KCB, Standard Chartered.....timid forays in to the salaried middle class which by the way has been consistently shrinking, and then the always reliable government paper. That is the breadth of their business strategy.

In closing, Barclays hit a cluster fuck when many of their 'safe investments' went bust a la the vast Matiba holdings, etc. They themselves have acknowledged their rise in 'bad debts' read politicos who no longer have access to the corridors of power. As a long suffering depositor at Barclays, believe me I know. PATRONAGE, SCHAMTRONAGE.......everyone plays that game, difference is Equity has banked on a massive pool of wananchi who may be high risk prospects but inherently industrious and fastidious if given the opportunity. They are laughing all the way to the bank, and I personally toast their success and hope to join their bandwagon.

Last but not least, to ColdTusker sorry I went off on a tangent...........I second and third your comments vis a vis banks being allowed to go in to the financial services market. I say BRING IT ON, many of the big banks are paper tigers anyway, and it would be good for independent brokerage houses to play tango with them so that everyone ups their game. Personally it is child's play outmaneouvering many of these behemoths, that's if you have the balls and the patience. Static, rigid entities become obsolete soon enough.

I had to vent though, it is depressing that Kenya's financial services sector caters to at best 15-20% of the population. Whatever profits they make now are negligible in comparison to the potential of the market......and it pisses me off that fiscal and monetary policy does not wrestle this indisputable fact to the ground. I must give credit though, Kibaki and Co. have finally had the spotlight shone in their eyes...they are starting to get it. PROSPERITY in a country must be underpinned by the depth of financial intermediation and accessibility to mobilize capital....POLITICS AND ECONOMIC 101!

Finally, to me it is stupid for most banks not to realize that the economic environment in Africa necessitates group guarantees on credit. The middle class and elite as a percentage of the population are too small to do it any other way. This cannot be rocket science, you can't replicate a Western business model, you have to create a totally new one that fits the reality. Richard Branson in SA gave a superb speech on this very point as he unveils an innovative 'wananchi credit line' in that market. Its unfortunate that this realization has come belatedly only when governments have loosened their stranglehold on fiscal policy and allowed indigenous players to redraw the rules of the game.

BanksI'm impressed. Plus the pple giving comments, big up, very informative.I use FD, and so far no probs with my trades, but your thoughts have made me kind of wary. I sold my Kengen at 39/- and got the cheque bila issues. But they have never gotten back to me on the online account thing. If we got to trade online, that would be excellent.

The Author of my Tomorrow - a love poem
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The author of my tomorrow
Is a man who knows tomorrow’s news
He’s smart, slick and quick with his tongue
His books tell of a curious mind and he likes his fu...